The Senate Banking Committee voted 16-7 on Thursday morning to reward Benjamin S. Bernanke with a second term as chairman of the Federal Reserve.It was a far closer vote than the first time his nomination was approved four years ago, as some senators expressed both gratitude for his role in helping quench the economic crisis and grave doubts about his role leading up to it. ...NYT
Two economists chime in:
JIM LEHRER: Now two differing views of Chairman Bernanke's performance.
Alice Rivlin served as vice chair of the Federal Reserve during the Greenspan era, and she was director of the Congressional Budget Office. She's now at the Brookings Institution. James Galbraith is a longtime observer of the Fed. He's a professor of government and business relations at the University of Texas at Austin.
Professor Galbraith, you do not believe Bernanke should be confirmed. Why not?
JAMES GALBRAITH, Professor of Government and Business Relations, University of Texas at Austin: Well, I have a great deal of respect for Chairman Bernanke, both as a civil servant and as a professional economist. But this was an institutional failure of the first magnitude. He was chairman of the Fed in advance of the crisis. He failed to heed the warnings that were being offered about the dangers in the housing market, about the dangers in derivatives. The Fed was lax in its approach to the regulation of the financial system at that time. And the crisis happened on his watch. In a sense, he was the admiral of a fleet. It went aground. It seems to me that, in the principle of command responsibility, the institution should get new leadership at this time.
JIM LEHRER: Alice Rivlin, you see it differently.
ALICE RIVLIN, Former Congressional Budget Office Director: I do.
JIM LEHRER: Tell us why.
ALICE RIVLIN: I think the whole financial community bears a lot of responsibility. And there were regulatory failures. And the Fed acted too slowly. But, when the crisis came, Ben Bernanke was absolutely the right person to be there. He was calm and collected. He was very knowledgeable. He was bold in using the powers of the Fed to stabilize the financial system. It was a really dangerous, chaotic situation. We could have had domino effect, big institution after big institution going down, and a total meltdown of the financial system. He avoided that.
JIM LEHRER: But you don't believe -- you don't buy Professor Galbraith's captain-of-the-ship analogy, right, that he was -- it happened to his watch, so he should go?
ALICE RIVLIN: No, I don't. I don't have a good explanation of why so many people who watched the Fed carefully and who watched the markets carefully missed this crisis, but almost all of us did. And I don't think Bernanke, who came in rather late in the development -- he took over the Fed in 2006 -- now, they might have acted more quickly in 2006 and '07, before the crash, but nobody saw this coming. And I don't think it's fair to say Bernanke should have seen it, when nobody else did.
JIM LEHRER: What about that, Professor Galbraith? Nobody else saw it. Why should Bernanke have seen it?
JAMES GALBRAITH: Well, I might change my -- go to court and change my name to nobody[!]
There were people who saw it, very well respected people. Warren Buffett warned that derivatives were weapons of financial mass destruction. There were warnings from within the Federal Reserve Board about the dangers that were emerging in the mortgage market in the subprime sector. There were warnings. This, I think -- it is the job of the Federal Reserve to be on top of financial danger, to be skeptical about speculative activity in the system, to both warn and to act. And it's of course characteristic, in advance of a crisis, that that is very difficult to do. But it is their responsibility.
And while I agree with Alice that action on a very, very large scale was warranted and carried out in the wake of the crisis, I also think it's a mistake to personalize this too much. Ben Bernanke played a useful role, but so did the Congress in extending insurance on bank deposits. So did the president in putting the Exchange Stabilization Fund to work behind the commercial paper market. In many ways, this was a team effort. And it -- it would not be right to do what "TIME" magazine did today and essentially attribute it to the extraordinary powers of a single individual. ...PBS
While I generally agree with Professor Galbraith, I think Alice Rivlin is not wrong. Many were to blame and far too many have been left off the hook. Here's where Galbraith hits the nail on the head:
JAMES GALBRAITH: ...If he were coming up for chairman for the first time, I would be in favor, but I think the overriding consideration now is, are we going to get a regulatory structure which acts with the aggressiveness and the skepticism that was so lacking in advance of the crisis?
With the same team and the same leadership everywhere but at the desk in the Oval Office, why should we expect any substantive changes?
